Dividend Discount Model (DDM)

P = D₁ / (r − g). Stock price = next dividend / (required return − growth rate).

Inputs

Result

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How to use this calculator

  • Enter next dividend D₁.
  • Enter required return r (CAPM).
  • Enter growth rate g (≤ long-term GDP growth).

About this calculator

DDM: stock price = present value of future dividends, growing at rate g forever, discounted at r. Best for mature dividend-paying companies (utilities, consumer staples). Limitations: assumes constant growth forever (unrealistic), highly sensitive to r−g spread (5% → 4% halves price), useless for non-dividend stocks. For multi-stage growth, use H-model or three-stage DDM.

Frequently asked

Why r > g?+
Otherwise denominator is zero or negative — infinite or negative price. Real growth must be < required return long-term.
D₁ vs. D₀?+
D₁ = next year's expected dividend. D₀ = last year's. D₁ ≈ D₀ × (1+g).
Realistic g?+
Long-term: ≤ GDP growth (~3-5%). Higher g for short term acceptable in multi-stage models.
For non-dividend stocks?+
DDM doesn't work. Use FCF-based DCF, P/E multiple, or other methods.
Sensitivity?+
r=10%, g=5%: P = D/0.05 = 20D. If g rises to 6%: P = D/0.04 = 25D (25% jump). Tiny g change huge.

Related calculators

Gordon Growth Model
Same as DDM: P = D₁ / (k − g). Single-stage constant-growth model.
WACC Calculator
WACC = (E/V)·Re + (D/V)·Rd·(1−T). Blended cost of capital weighted by debt + equity.
Free Cash Flow (FCF)
FCF = EBIT(1−T) + D&A − CapEx − ΔNWC. Cash available to all capital providers.
EBITDA Calculator
EBITDA = Net Income + Interest + Tax + D&A. Operating earnings before financing + non-cash items.
Return on Equity (ROE)
ROE = Net Income / Avg Shareholders' Equity. Profitability per dollar of equity.
Return on Assets (ROA)
ROA = Net Income / Avg Total Assets. Profitability per dollar of all assets.

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